Chinese smartphone maker Xiaomi said on Sunday it had sued the US government over a move by the Trump administration which bars American investment in the company.

Why it matters: This is the first legal challenge launched by Chinese firms on the Trump administration’s investment blacklist. The US Department of Defense (DOD) alleges that the entities are “Communist Chinese military companies,” meaning they are owned or controlled by the People’s Liberation Army.

  • Chinese tech companies have won legal challenges against the US government sanctions before. In December, a district judge fully blocked the Trump administration’s attempt to ban the Chinese video-sharing app TikTok in the US.
  • But Huawei, a Xiaomi rival, has found little respite pursuing legal challenges. In February, a federal judge rejected Huawei’s constitutional challenge to a US law that restricts it from doing business with US federal agencies.

Details: Xiaomi said in a statement filed with the Hong Kong exchange on Sunday that it had filed proceedings in the US District Court for the District of Columbia against the DOD and the Department of the Treasury on Friday. 

  • Xiaomi said that it believes its inclusion on the blacklist was “factually incorrect and has deprived the company of legal due process.”
  • The firm has asked the court to declare the decision illegal and to reverse the course, it said.
  • Defendants of the suit also include the US defense secretary, Lloyd Austin, and Janet Yellen, the Treasury secretary, according to a court filing.
  • The DOD didn’t “provide any explanation for its decision to designate Xiaomi as a Communist Chinese military company,” nor did it give Xiaomi any opportunity to explain, the company said in the court filing on Friday.
  • Xiaomi denied any allegations that it is owned, controlled, or does business with China’s defense industry.
  • The Defense and Treasury haven’t responded to the lawsuit.

Context: An executive order signed by former US President Donald Trump in November bans American investment in companies that are deemed to be linked with the Chinese military.

  • American investors will be prohibited from buying Xiaomi shares and will have to divest their holdings by November, according to the executive order.

Wei Sheng

Writing about semiconductors and telecommunications.